Active learning ideas
Market failure occurs when the free market fails to allocate resources efficiently, leading to social welfare loss. This topic covers externalities, public goods, and asymmetric information. Students examine why the market over-provides 'demerit' goods like tobacco and under-provides 'merit' goods like education or healthcare.
Activity 01
Students create posters showing local examples of positive and negative externalities (e.g., a new park vs. a noisy factory). The class walks around, using sticky notes to identify the 'social cost' and 'private cost' for each example.
Why do free markets under-provide public goods?
Activity 02
Using a simple game with shared resources (like 'fishing' for paperclips), students experience how individual rational behavior leads to collective ruin. They then brainstorm local solutions for protecting Irish fishing stocks or common grazing lands.
How do negative externalities like pollution impact society?
Activity 03
Students discuss why a health insurance company might charge more if they don't know a person's medical history. They then research how the Irish 'community rating' system attempts to solve this market failure.
What role does asymmetric information play in the insurance market?
A few notes on teaching this unit
Watch Out for These Misconceptions
Public goods are just any goods provided by the government.
Public goods must be non-excludable and non-rivalrous (like street lighting). Using a sorting activity with goods like 'public parks' (which can be crowded) helps students distinguish between pure public goods and merit goods.
Externalities are always bad.
Positive externalities, like the benefits of a neighbor's beautiful garden or a vaccinated population, are beneficial. Collaborative mapping of 'hidden benefits' helps students visualize the under-consumption of positive externalities.
Methods used in this brief
Elasticity and its Applications
Examining price, income, and cross elasticity of demand and their implications for businesses and government policy.
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